Smooth transition: What happens when a business owner wants to step back?

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It can be hard to pass the reins of executive leadership on to someone else. Philip Hendrickx, managing director at Robert Half's Executive Search Practice, explores the options for owners and chief executives looking to find their replacement before joining the board.

In private or family-owned business, the owner (often the chief executive) reaches a point when they want to take a step back from their day-to-day role. They might become president or chair of the board so they can relinquish their executive responsibilities as they head towards retirement.

Stepping back as a business owner and introducing a new executive to the business can help in avoiding burnout and creating more options. A non-executive position can give them a platform to stay involved in governance and decision-making while opening the door for a new c-suite hire to flourish.

This transition can be tough for someone who has lived and breathed their business from day one. Leaders that have built operations from the ground up often struggle to pass on the reins of responsibility to someone else. The quality of this transition is therefore pivotal for them, the incoming chief executive and the board, so the business can continue to thrive.

On the surface, the board and the outgoing chief executive have two choices to make: appoint someone from the business or look for a chief executive with proven experience. But that’s not all there is to consider. In the process of finding a viable successor, they will have to evaluate their long-term approach to attracting and retaining talent – the biggest, and most important, challenge many small and medium enterprises face.

Externally sourced executive hires: fresh eyes, but potential clashes

A new chief executive from outside the business can be refreshing. With diverse minds at the top, businesses can better understand the priorities of different customer groups, technological advancement and their environment impact. They should come with new ideas, immediate experience of the market, and time spent handling the demands of the role somewhere else. This gives them the confidence to make bold decisions, execute on the agreed strategy, and establish the role as they wish.

But strong personalities can sometimes clash, especially if there is a difference in executive leadership styles. If a company is looking to replace a long-term leader with someone from outside the business, that person will need emotional intelligence, empathy, and a strong backbone. These qualities will help them to understand what the outgoing chief executive is going through, share responsibility for an effective transition – all while standing their ground.

They do not have to be a clone of the previous CEO, but their personality, knowledge, experience, network and leadership skills must be able to positively influence the entire company. Knowing how to choose a good executive leader, especially when you’ve worked so hard to build up your business to what it is today, can be really challenging – being flexible and open-minded will make all the difference.

A one-year handover period, for example, could help them to work together before handing over the reins for good. It’s pragmatic, sustainable, but often overlooked. Coaching can also help to prepare for, and work through, the process of stepping down and letting go.

Internal executive hires: succession planning for the future, letting go

A senior leader from inside the business comes with an advantage: they understand how it works, have experience at a senior level, and know the outgoing chief executive.

Sales directors and chief commercial officers can often develop the experience needed to make a good transition; chief financial officers and regional managing directors are also close enough to make the step. However, they may lack the same breadth of ideas found in external candidates.

Internal promotion will usually suit a leader who is ready to retire and can trust to take over the job duties of a business owner. There will be a previous hierarchical relationship to overcome – which might cause challenges if the owner isn’t ready to let go – but if the new leader has been developed to take on the role, they will have the advantage of building long-term trust before taking over. Again, empathy and emotional intelligence will go a long way.

Many businesses are specifically focusing on increasing inclusion, with 23% amending hiring processes and the same percentage creating employee network groups to aid with culture. So, introducing someone that is already familiar with the company’s culture can give them a head start in making the right decisions regarding DEI and ESG.

Some owners, however, still struggle to invest in the process of internal succession. It needs to be developed carefully, with executives gaining exposure to the business through a programme of leadership development.

A rotation through different departments or regions, can provide valuable experience and new ideas, alongside an MBA programme. It’s a big investment, but one with a long-term return.

Towards a smooth transition

Whether your candidate comes from internal or sourced externally, owners and boards will have to reflect on how much they are prepared to invest in the process, and what might happen if they don’t. They will also reveal, often painfully, why too much control in the hands of one person can stifle progress.

But challenging circumstances also reveal potential solutions. Executive leadership training using coaching, a supportive board, and an empathetic external chief executive, will help avoid wasted appointments; a structured approach to leadership development will deliver an internal succession plan and long-term dividends. Once an owner is clear about their personal aspirations it is then just a case of developing a business plan that delivers these aspirations.

Either way, a smooth transition needs clear intentions, investment, and everyone – non-executive and executive alike – to work together for the good of the business.

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About the Author

Philip Hendrickx has been a pillar of Robert Half for over 25 years, dedicating the majority of his career to establishing and expanding the firm’s executive search practice. Passionate about building strong leadership, he has successfully supported businesses across industries in appointing high-impact C-suite executives—including roles in General Management, Finance, ICT, Operations, Sales & Marketing, HR, and beyond. Before joining Robert Half, Philip developed his expertise at Reckitt Benckiser and PwC.

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